Revenues for state still down

Posted July 09, 2009, at 9:50 p.m.

AUGUSTA, Maine — Like most weather reports so far this summer, Maine’s economic forecast for the next few months can be summed up with one word: dreary.

On Thursday, members of the Legislature’s budget committee received another gloomy forecast when state officials warned that revenue flowing into state coffers in June was $35 million less than projections made just a few months ago.

That brings the revenue shortfall for the fiscal year that ended June 30 to about $50 million, according to preliminary figures released Thursday. And the near-term outlook isn’t much brighter as the tourism industry — the state’s primary economic engine — struggles to cope with one of the rainiest seasons on record.

“Not surprisingly, we are expecting a difficult month again next month largely due to the weather,” Ryan Low, commissioner of the state Department of Administrative and Financial Services, told members of the Appropriations and Financial Affairs Committee.

Technically, state government finished the fiscal year that just ended in the black. That’s because emergency legislation allowed finance officials to tap into reserves that had been included in the 2010-11 budget. But it means that the state began the new biennium in the red.

If the current trend continues — and it shows little sign of changing course — the committee and Gov. John Baldacci’s administration will have to identify at least $80 million in savings over the biennium that began July 1. The committee was already charged with plugging a $30 million hole that was built into the 2011 fiscal year budget.

That prospect prompted committee co-chairman Sen. Bill Diamond, D-Windham, to urge his fellow lawmakers to begin thinking about major cuts.

June revenues were down in most major categories.

Sales and use taxes appear to be 3 percent, or about $5 million, below projections, according to the estimates released Thursday. May’s revenues, by comparison, were down $3.3 million.

The biggest hits appear to be in corporate and individual income tax revenues.

Individual income taxes were 12.7 percent — or $23.5 million — below projections in June, bringing the year-to-date shortfall for that one category to $39.5 million. Once again, that is significantly more than the losses reported in May.

Corporate tax returns for last month, meanwhile, missed the mark by 26 percent, or $9.2 million.

“So the trend is not going in the right direction,” said Rep. Patrick Flood, R-Winthrop.

Low was asked whether there were indications about how long the slump will continue.

“We are very concerned that it is a trend,” Low responded. “We’re not there yet. We’d like to see the July revenues first and get through the bulk of the tourist season.”

Absent a dramatic turnaround, however, the committee will have to make even deeper cuts to a $5.8 billion state spending plan that was already $500 million smaller than the previous budget.

Lawmakers already have slashed funding for programs across state government. Cuts included $50 million less in state aid to local schools in fiscal year 2011 and reduced tax benefits to people who participate in the Circuit Breaker and Homestead Exemption programs.

Earlier this week, the vast majority of state workers were ordered to stay home without pay during the first of 10 government shutdown days planned for the fiscal year. Ten shutdown days also are planned for next fiscal year.

Rep. Emily Cain, co-chair of the Appropriations Committee, agreed with Diamond that the latest projections likely will force lawmakers and the Baldacci administration to make additional difficult decisions.

“That’s all the more reason to have the tough conversations sooner rather than later,” said Cain, D-Orono. “We can’t wait to talk about uncomfortable things.”

The committee is scheduled to begin work on identifying additional savings in the budget on July 22 and 23.

David Farmer, the governor’s spokesman, said the administration would work with the Appropriations Committee to identify savings and suggest structural changes within state government. Baldacci also is reviving the Governor’s Council on Competitiveness and the Economy to act as a sounding board for possible cuts.

But Farmer said the governor will not support raising taxes or undoing the recently enacted tax reform bill, which lowered income taxes for most Mainers while broadening the sales tax base.

“We’re not going to look at broad-based taxes to balance the budget,” Farmer said.

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